Trade Offs

A growing number of states don't want to be part of free-trade pacts
that block their purchasing preferences.

As the U.S. Senate prepares for debate over the Central American Free Trade Agreement, some state officials are already lobbying against it. A handful of governors and several legislators are concerned that free-trade pacts abrogate a state's right to make purchasing decisions based on environmental, labor or health and safety concerns--anything, in other words, besides the lowest price.

The issue surfaced in 2003 when the U.S. trade representative sent a letter to governors asking them for carte blanche in negotiating purchasing rules with other countries. Twenty-eight signed on, but now governors in seven states have changed their minds and a number of legislators in those and other states have become critical of the pacts' effect on purchasing.

"The states have been using their purchasing power rather than the heavy hand of regulation to take the lead in both the human rights and environmental movements," says Robert Stumberg of Georgetown University law school. State officials, he says, are concerned about having to comply with trade-pact procurement rules even before those rules have been negotiated. As an example, Stumberg says that the ability of states to decide not to buy from companies that take part in shocking forms of child labor is threatened by trade pacts.

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Based on court actions under previous trade pacts, it's not surprising that states consider themselves at risk. A Canadian company, for instance, has sued for $970 million claiming California discriminated against it when it barred the purchase of a company product that contained the gasoline additive MTBE. California rejected it out of environmental concerns.

California also is being challenged by Glamis Gold. The Canadian mining company claims the state's new law requiring mining companies to refill the holes they dig near historic sites is illegal. The mine in dispute is near Indian sacred ground.

U.S. mining law prohibits state laws that are de facto bans on specific projects and the company could have argued this through the federal courts. But, according to Laura Metune, staff director of the California Senate Select Committee on International Trade, company officials have said that they have a better chance of winning on trade-pact grounds. "And they're right," Metune says.

Christopher Padilla, who handles intergovernmental affairs for the U.S. trade representative, says trade negotiators offer safeguards to protect state preferences. He says the MTBE case hasn't changed a thing in California and that the feds have become more sensitive about banning "frivolous claims" in trade agreements since approving the North American Free Trade Agreement. As to signing on to other treaties, he says that the states can set limits on what they'll agree to.

Padilla also sees a constructive lesson for the states in a case the U.S. recently had before the World Trade Organization. The Caribbean country of Antigua and Barbuda challenged federal and state bans on Internet gambling and won. The U.S. plans to appeal the decision. "Even if we don't prevail on appeal, nothing the WTO does can force any state to change its laws," Padilla says. "The worst that would happen is that Antigua and Barbuda would be able to retaliate" against American imports.

"That's easy for him to say," says Liz Figueroa, chair of the California Senate select committee. "It's not about losing or winning on a case-by-case basis. It's about developing standards that we'd like the rest of the world to pay close attention to."

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